Tax Shelter Frequently Asked Questions

A tax shelter is an arrangement where the tax benefit received from paying into it is greater than the amount paid. Understanding the key terms, processes and having the right representation can help you ensure you don't get charged with tax evasion. With ex-CRAs professionals, Farber Tax Solutions can handle the CRA on your behalf.

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What is a Tax Shelter?

A tax shelter is an arrangement where the tax benefit received from paying into it is greater than the amount paid. The CRA has taken a very aggressive stance against tax shelters, and they will rarely if ever, stand up to the scrutiny of the CRA or the courts.

An example of a tax shelter is what is known as a ‘gifting arrangement.’ A gifting arrangement will frequently promise to write a charitable receipt in excess of the amounts given to the organization.

These organizations will frequently hold themselves out as legitimate. It is possible that they will present letterhead from the CRA claiming to be certified by the government, and they have even been known to go so far as to provide letters allegedly signed by the Prime Minister. These are known as ‘mass market’ tax shelters, and they have never been found to comply with the Income Tax Act.

If a taxpayer attempts to take advantage of a tax shelter, the consequences can be very serious. The CRA will reassess anyone who claimed the benefit of this kind of arrangement, and imposes retroactive interest and possibly penalties.

The CRA has the following to say as words of caution for anyone who may become involved with a tax shelter arrangement:

Anyone considering entering into a tax shelter arrangement should obtain independent professional advice from a tax advisor before signing any documents. In addition, they should:

know who they are dealing with, and request the prospectus or offering memorandum and any other documents available in respect of the investment and carefully read them;

pay particular attention to any statements or professional opinions in the documents that explain the income tax consequences of the investment. Often, these opinions will tell the investor about the problems that can be expected and suggest that the investor obtain independent legal advice;

not rely on verbal assurances from the promoter or others get them in writing; and

ask the promoter for a copy of any advance income tax ruling provided by the CRA in respect of the investment. Read the ruling given and any exceptions in it. (Could the above be put up on the screen for the viewer to read along with the speaker?

It is very important to be on the lookout for predatory arrangements like the gifting arrangements mentioned earlier. They can frequently appear legitimate, and will even write charitable receipts. However, these arrangements are universally non-compliant with the Income Tax Act, and the consequences of becoming involved in such an arrangement can be very serious.

Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:

1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;

2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and

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Farber Tax Solutions is a tax dispute resolution firm serving clients across Canada. Our team of ex-CRA professionals at Farber Tax Solutions provide effective tax solutions and the tax lawyers from our affiliate: Farber Tax Law, ensure that you get high-quality litigation services and legal advice. This ensures that you get holistic and robust tax solutions. We have built our reputation on outstanding client service and are committed to helping you succeed in your tax matter.

*Farber Tax Law is an independent law firm affiliated with Farber Tax Solutions in Ontario, Canada **Past results are not necessarily indicative of future results and the amount recovered will vary according to the facts in individual cases.